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Prevailing party can recover legal fees for in-house lawyer

The “American Rule” is that parties pay their own legal fees for a dispute. Fees can be shifted by contract or by statute, but fee-shifting remains in the minority in US lawsuits. When legal fees are recoverable, the court (judge) normally evaluates and determines the amount of legal fees to be awarded to a successful party, based on detailed billing information submitted by outside counsel. But what is the outcome if the prevailing party relied primarily on its in-house counsel, who was on the company payroll all the time and never submitted any bills? The Massachusetts Appeals Court has held that reasonable fees attributable to the in-house attorney's effort are recoverable.1

The underlying dispute included a particularly nasty set of actions by the losing party, and the court decided that the defendant had acted in an “unfair and deceptive” manner, violating the Massachusetts fair trade practice statute. The other side was thus entitled to recover its legal fees. But most of the work had been done by an in-house attorney who had not billed the company for his effort, and so the losing party argued that legal fees had not been “incurred” for the in-house attorney’s effort.

The trial court had awarded attorneys’ fees “on principles of fairness, the public policy served by fee awards, and case law upholding statutorily mandated fee awards even in the absence of billing.” The Appeals Court agreed, and noted that “having in-house counsel engaged in the present suit had a concrete financial impact on [the prevailing party], which we conclude 'incurred' a cost.” Also, there is a deterrent purpose in awarding attorneys’ fees, and the losing party should not benefit simply because the prevailing party chose to use in-house instead of outside counsel.

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